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The U.S. Circuit Court of Appeals yesterday agreed to hear Microsoft's appeal of a sweeping breakup order imposed on it for federal antitrust violations.

In a victory for the giant software manufacturer in legal maneuvering with the government, the court acted even before U.S. District Judge Thomas Penfield Jackson could hear the government's request to bypass the circuit court and send the case directly to the Supreme Court.

The appeals court said it was acting "in view of the exceptional importance of these cases." Noting that three of its 10 judges are disqualified from hearing the case, the court said all remaining seven judges would hear the appeal. With that many disqualifications, the court said, a hearing by three judges followed by a rehearing by the entire court would be impractical.

The government had no immediate comment on the company's success in maneuvering the case into the Court of Appeals, where Microsoft had won an early round.

Earlier yesterday, the government won an initial skirmish on where the appeal would be heard when Judge Jackson, just as the government asked, reserved judgment on Microsoft's motion to stay his antitrust penalties until the company filed a notice of appeal.

The government wanted that delay so it could file a request for direct appeal to the Supreme Court, but that motion could not be filed until Microsoft's notice of appeal was filed. The government wanted the judge to consider the stay and the direct appeal requests together.

Within hours after Judge Jackson ruled, Microsoft filed the notice of appeal with him and another stay motion with the court of appeals. The court of appeals took the case and, in its hurry, did not even address Microsoft's request for a stay from the court, even though the company had a stay motion pending with Judge Jackson.

The appellate court's decision came after regular trading ended on the Nasdaq stock market, where shares of Microsoft finished regular trading at $67.88, up $1.

In after-hours trading, shares of Microsoft jumped $2.56 to $70.44.

The company's stay motion in the court of appeals was 39 pages long and reviewed many of its reasons for arguing that Judge Jackson's ruling against it should be overturned.

The Microsoft stay motion said Judge Jackson made "an array of serious substantive and procedural errors that infected virtually every aspect" of the trial and sentencing in the district court.

After finding that the company abused its monopoly over personal computer operating systems to harm consumers and thwart innovation, the judge ordered the company split into two and imposed restrictions on Microsoft's business conduct while it appeals the decision.

The judge delayed the breakup until the appeals are finished, but his restrictions on Microsoft's business conduct will go into effect in 85 days unless some court grants the company the stay it seeks.

On Monday, the government told Judge Jackson any substantial delay in imposing his restrictions "would greatly damage the public interest."

But the department's antitrust division also asked him to briefly delay denying the stay to thwart what it called Microsoft's bid to manipulate the court. It urged him not to rule on the stay until Microsoft files its promised notice of appeal and then to rule on both together.

Meanwhile yesterday, Bill Gates brushed off Judge Jackson's ruling, calling it an "unfortunate distraction" that he believed would be resolved in Microsoft's favor.

Last week's ruling "did not reflect reality" and was a "rewriting of the rules" in terms of giving consumers a choice of products, the chairman and founder of Microsoft said at the biennial World Congress 2000 on Information Technology.

"We all know this is a fast-paced competitive business. We thrive on competition. If anything this kind of misguided lawsuit can do is draw our team together," he said.